Accounting for certain costs in a cloud computing arrangement - Considerations for regulated entities

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In depth , PwC US Nov 08, 2018

Read how the new cloud computing accounting guidance may impact ratemaking for regulated entities.

Accounting for certain costs in a cloud computing arrangement - Considerations for regulated entities

Guidance issued in August 2018 addresses the accounting for the implementation costs associated with a cloud computing arrangement that is hosted by the vendor (i.e., a service contract). The guidance requires companies to evaluate those costs for capitalization following the model for the capitalization of software licenses and to expense capitalized costs over the term of the hosting arrangement. The guidance is effective for calendar public business entities in 2020. All other entities have an additional year. Early adoption is allowed. The guidance permits either retrospective or prospective transition.

Regulated utilities should consider the potential ratemaking implications of the new guidance. In particular, utilities should start a discussion with their regulators about inclusion of the capitalized costs in rate base, keeping in mind that regulators may focus on the timing of cash flows related to the arrangement in making a determination. In addition, there may be some rate advantages to applying the retrospective method of adoption.

To have a deeper discussion, contact:

Sean Riley

US Power & Utility Accounting Technical Leader, PwC US

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Jillian Pearce

Senior Manager, National Professional Services Group, Florham Park, PwC US

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David Schmid

David Schmid

International Accounting Leader, National Professional Services Group, PwC US

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